United States: The Ups And Downs Of Estate Valuations Of Artwork

Last Updated: January 12 2016
Article by Amelia K. Brankov

First published on WealthManagement.com

Last month, in Estate of Newberger v. Commissioner,1 the U.S. Tax Court found that a collector's estate grossly underreported the value of an artwork for estate tax purposes by ignoring the fact that, in early 2010, less than seven months after the collector's death, the artwork fetched at auction more than twice the amount the estate was claiming the work was worth at the time the collector died in mid-2009.  The court rejected the estate's claim that the post-death sale, which occurred when the art market was rebounding from a recession, was irrelevant because the art market rebound wasn't foreseeable at the time of the decedent's death.  The court sided with the estate on the valuation of two lower-priced works, finding that the IRS' appraisals overvalued the works by failing to account for the adverse market conditions that existed at the time of the collector's death.   The court's decision is a cautionary tale illustrating that valuations should account for post-valuation date sales and market conditions if they are reasonably proximate in time.  Here's what you need to know about the case.

The Estate and Its Form 706 Filing

Art collector Bernice Newberger died on July 28, 2009.  Her estate included the following three artworks:  Tête de Femme (Jacqueline) by Pablo Picasso (the Picasso), Untitled by Robert Motherwell (the Motherwell), and Elément Bleu XV by Jean Dubuffet (the Dubuffet) (collectively, the artwork).  At the time of her death, the U. S. economy was in a recession, and the art market had suffered a significant downturn.  In October 2008, 44 percent (double the October 2007 rate) of the artwork at auction failed to reach the minimum or guaranteed price, and in 2009 the top auction houses' revenues were halved from the prior year.2 By 2010, the art market rebounded, with auction revenue nearly doubling the 2009 total and almost matching the 2007 revenue figures.3

In December 2009, the estate consigned the Picasso to Christie's for a Feb. 2, 2010 auction in London.  The consignment agreement provided the estate with a guarantee of $4,784,689 and 60 percent of the hammer price (that is, the amount of the winning auction bid) exceeding that amount.4 In its sales catalogue, Christie's sales estimates for the Picasso ranged from $4,784,689 to $6,379,585. Christie's also provided the estate with an appraisal report indicating that the Picasso had a $5 million date of death value.  At auction, the Picasso sold for much more than the auction estimates—a total price of $12,927,874 ($11,484,000 hammer price  and a $1,443,874 premium paid by the buyer to Christie's).5

On Oct. 28, 2010 (eight months after the Christie's sale), the estate filed its Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return.  The estate reported $5 million as the date of death value for the Picasso, relying on the appraisal it received from Christie's and ignoring the actual auction result.6 The estate reported date of death values of $450,000 for the Motherwell and $500,000 for the Dubuffet, on the basis of appraisals received from Sotheby's.7

Almost three years later, on Aug. 14, 2013, the IRS issued to the estate a notice of deficiency, claiming that the aggregate value of the artwork was $15,250,000, not $5,950,000, as the Estate contended.  According to the IRS, the Picasso, the Motherwell and the Dubuffet had date of death values of $13 million, $1.5 million, and $750,000, respectively.8

In response, the Estate filed a petition with the U.S. Tax Court challenging the notice of deficiency.  In the proceeding, the estate and the IRS retained experts to assess the date of death value of each artwork. 

The Picasso

The estate's expert valued the Picasso at $5 million, while the IRS valued that work at $10 million ($3 million less than the value stated in the notice of deficiency to take into account July 2009 market conditions).  The estate's expert argued that the court should disregard the fact that the Picasso sold for over $12 million in 2010 because the sale was a "fluke" and couldn't have been reasonably anticipated on the decedent's date of death, when the economy was in recession and the art market was depressed.  The court rejected that argument -- even if the post-mortem sale wasn't foreseeable and thus didn't affect fair market value (FMV) as of the valuation date, the court held the sale can be taken into account as evidence of FMV as of the valuation date.9 The court found that the most probative evidence of the Picasso's FMV was its direct sales price, and the estate's failure to consider the sale rendered its valuation "wholly unreliable."10 Accordingly, the court concluded that the IRS' valuation, which adjusted the $12,927,874 auction sale price downward to $10 million to reflect July 2009 market conditions, was proper.11

The Motherwell and the Dubuffet

Both sides' experts agreed that the best comparable for the Motherwell was a Nov. 11, 2010 sale of In Black and White No. 5 for $1,426,500 because the artist created both works in the same year, with a similar size, style and composition.12 The court concluded that the IRS' $1.5 million valuation was incorrect because its expert: (1) inexplicably failed to apply a market adjustment, as the expert had done with the Picasso, and (2) illogically valued the work for more than the sale price of the comparable which sold after the market had rebounded.13 By contrast, according to the court, the estate's expert properly adjusted the comparable's sales price downward to reflect 2009 market conditions and valued the Motherwell at $800,000.14

The court found the IRS' valuation of the Dubuffet flawed for the same reasons as the Motherwell valuation.  As determined by the court, the best comparable for the Dubuffet was a Nov. 14, 2007 sale of a similarly sized work from the same series for $825,000.  The court found the IRS' valuation of the Dubuffet at $900,000 "nonsensical" because the comparable was sold before the market downturn, and it made no sense to value the work higher than the comparable.15 Because the estate's $500,000 valuation reflected a market adjustment for the 2009 economic downturn, the court adopted the estate's valuation.16

Take-Away Points

The Newberger decision is a reminder to practitioners and appraisers that sales occurring after a decedent's death are very relevant for purposes of estate tax valuations and should be considered in connection with a Form 706 filing.  The court's analysis shows that actual sales reasonably proximate in time are the best evidence of value and should be the starting point for a determination of value, but appropriate adjustments to take account of market conditions as of the valuation date are justified.  The court summarily dismissed the estate's argument that the Christie's auction result was unforeseeable at the time of Bernice's death and thus irrelevant, which suggests that the estate might have fared better had it simply addressed the auction result and advocated for a larger discount for adverse market conditions than the IRS' $10 million valuation had allowed.  Additionally, the court's rejection of the IRS' valuations of the Motherwell and the Dubuffet show how important it is to ensure that the appraisal takes account of market conditions existing as of the valuation date. 


1. Estate of Bernice Newberger v. Commissioner, T.C. Memo. 2015-246 (2015).

2. Ibid. at *2.

3. Ibid. at *2-*3.

4. Ibid. at *3.  That same month, Sotheby's offered the Estate a $3.5 million guarantee for the Picasso.

5. Ibid. at *4.

6. Ibid.

7. Ibid.

8. Ibid. at *5.

9. Ibid. at *5-*6 (citing Estate of Jung v. Commissioner, 101 T.C. 412, 431-32 (1993)).

10. Ibid. at *6.

11. Ibid.

12. Ibid.

13. Ibid. at *6-*7.

14. Ibid. at *7.

15. Ibid.

16. Ibid.


This alert provides general coverage of its subject area. We provide it with the understanding that Frankfurt Kurnit Klein & Selz is not engaged herein in rendering legal advice, and shall not be liable for any damages resulting from any error, inaccuracy, or omission. Our attorneys practice law only in jurisdictions in which they are properly authorized to do so. We do not seek to represent clients in other jurisdictions.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Amelia K. Brankov
Similar Articles
Relevancy Powered by MondaqAI
Ruchelman PLLC
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Ruchelman PLLC
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions